As Australia emerges from the COVID 19 pandemic, there is growing evidence of the behavioural changes which have been made in the way people live, work and shop; all of which is likely to have long term implications for our major cities.
Even though last remnants of the restrictions have extensively been lifted, some significant difference in Post COVID Perth remain. The City has changed.
An analysis of commuting patterns, as well as commercial and residential property markers, illustrates the flow-on effects of increased working from home; a practice which has become more prevalent following the pandemic.
A major post COVID 19 change has been to commuting patterns. In Perth, despite the lifting of compulsory mask mandates, there has been a significant drop in public transport usage. Transperth data shows patronage is down 35.6% from pre-COVID 19 levels. In comparison, Sydney, where restrictions were in place for longer than Perth, and lifted in December 2021, public transport use remains down 14.6%.
In response to the fall-off in public transport usage, car travel has risen 1.1% on Perth’s major city access roads, which represents approx. 5,000 additional cars per day. In Sydney, car commuter traffic is down 19.6% from pre-pandemic levels.
Perth’s office vacancy rate has declined from pre-COVID 19 levels aided, in part, by leasing incentives and stock withdrawals. Even so, the drop in daily commuters, compounded by a structural increase in on-line shopping, has resulted in commercial retail vacancies increasing by more than 30% from pre pandemic levels.
This PAR Group’s analysis, undertaken by Damian Stone of Y Research and Rob Ellis of The Data App, examined changes to commuting patterns, commercial property occupancy and yields, e-commerce spending and residential property transactions from pre-pandemic levels, to identify the impact of the COVID 19 pandemic on way Sydney and Perth residents live, work and shop.
Key Perth Results
- Working from home, as well as fears of virus transmission, resulted in a significant change in Perth’s commuting patterns. In spite of a lifting in restrictions, public transports trips are down 35.6% from pre COVID levels. This decline is marginally offset by a modest 1.1% in car usage on key access roads into the city.
- Perth’s changed commuting patterns has resulted in fewer people going to work in the city. The Property Council, estimate, compared to 2020 levels, only 50% of the existing daily office workforce have physically returned.
- As a consequence, the city retail sector has been significantly impacted. A lower footfall has been compounded by a 189.8% increase in the share of online spending compared to pre-pandemic levels. This has contributed to the vacancy rate for city retail property increasing by over 30%; now 17.8% compared to 12.8% prior to the pandemic.
- The global wall of capital, facilitated by record low interest rates, helped fuel house price growth in Perth, rising in excess of 10% from pre COVID levels. The ability to work remotely during the pandemic bolstered demand outside of Perth even more, with prices rising just under 25% over the same time frame.
- The implications of these behavioural changes for commercial property are yields on retail assets are down 68 basis points, while industrial assets, bolstered by the surge in e-commerce, have fallen a shade over 200 basis points in WA. Conversely office yields have softened 101 basis points.
- In spite of border restrictions, the population of WA grew by 1.5%, or 751 people per week. This growth, despite border restrictions is linked to strong natural growth as well as the likely return over 6,000 West Australian from the east coast.
The table below outlines some of the transformations to Perth’s way of life resulting from the pandemic and some of the ramifications on the property sector.
The long-term impact of COVID 19 not only represents a paradigm shift for commercial property in the city of Perth, but in Australia’s other major cities. The way people live, work and shop has changed and it is unlikely the end game has even been reached.
The changes to commuting patterns have been dramatic. From pre-COVID levels, public transport use in Perth has dropped by over 35%. This has been offset by a small uptick of 1.1% in car usage on key access roads into the city over the same time frame. The drop in public transport use, while varying, is a common feature across Australia’s major cities.
In spite of an estimated 1,558 additional office workers from pre-COVID levels, working from home, for flexibility and business continuity, has seen only half of the daily office workforce physically return to their desk. City based Perth retailers, which rely heavily on the daily office workforce, have experienced a significant drop in spending, all of which has been exacerbated by on-line shopping. Consequently, the past year alone, Perth has witnessed a decrease in the number of food and beverage retailers, as well as bank branches.
The current narrative revolves around getting office workers back to the city. The evidence, so far at least, suggests Perth, like other Australian centres, may also need to consider the scenario of fewer people working in the city than prior to the pandemic.
Previously, the city was, for many workers, the ‘destination of default’, as all roads and public transport led to the city. Given the broader choices involved in coming to a physical office now, the city and its office towers need to give office workers a reason to be there, retailers equally need to have a compelling offering to entice retail spending.
With the possibility business could be less central to the city going forward, the focus could shift to changing the makeup of the city. This could entail fostering more residential and entertainment uses, as well as international visitors (education and tourist). The creation of defined precincts, such as education around the new ECU campus, to be developed at Yagan Square, which could be used to attract more people back to the city.
One simple change could be to Perth’s branding. Being referred to as a CBD, creates the image of offices, a business district, not one of entertainment, nightlife or culture. Calling the city what is, the city, could help to more accurately reflect what it is, or would like it to be.
In the short term, it seems the focus needs to be on the role of the office post pandemic, as well as support measures for city retailers. If it is a case of encouraging people back to the office, actions to facilitate a return to public transport and incentives to encourage active commuting (walking and cycling) will be required. Without some initiatives, the emerging legacy of the Covid-19 pandemic, will be fewer daily workers, with the result higher vacancy rates, particularly for secondary grade office buildings, let alone city retail properties.
For further information, please contact:
Rob Ellis, Director of the Data App. Mob: 0417 195 352 or email: email@example.com
Damian Stone, Principal and Chief Problem Solver of Y Research. M: 0433 525 414 or email: firstname.lastname@example.org
Other research undertaken by the http://PAR.Group/ on the impact of the pandemic and e-commerce on shopping centres refer to the links below:
About PAR Group
Real Investment Analytics (RIA), The Data App (TDA) and Y Research are partners in PAR Group, an independent research collective offering a comprehensive range of property research and analytical services. The team is experienced in economics, property research, transactional and corporate strategy; all with extensive industry involvement in both the property and finance sectors. Visit: http://par.group/ for more information.